Unleashed on the individual trader for the first time. If you keep getting sniped by false breakouts in the stock market and are losing money, this article could change your stock trading forever.

I am going to tell you a stock trading secret that is so powerful, it will save you thousands of dollars. This secret has saved me thousands of dollars and now I’m breaking my silence to show you how to do the same.

You are about to discover the unfair trading tactics that institutional and professional traders use against you in the stock market.

It might get you angry. It may make you fly off the handle.

You may even want to forget you ever read this.

But you need to know what they are doing.

Because by the time you finish this article you’ll have a whole new method for avoiding false breakouts.

We must define support and resistance and then look at in more depth what false breakouts really are.

Seeing why support lines and resistance lines form will help you learn how to better protect yourself against false breakouts.

When most traders buy and sell, they make an emotional commitment to their trade. It is their emotions that will keep a market trending higher or send it into a reversal.

When a stock falls, some traders jump out and book profits, some traders jump out and take losses, and some traders hold on.

What you see on a chart is the emotional commitment, or lack thereof, coming from the crowd that is trading that stock.

Pain Is the Biggest Reason Why Support and Resistance Lines Form

If a trader is still holding on to the stock when the price claws back to his cost basis, he’s likely going to sell. There are lots of painful memories of being trapped in the stock and all he wants to do is to get out of the stock as fast as possible. This emotion and subsequent selling action will bring a rally to a temporary stop. Bad thoughts like this are one of the main reasons you see resistance and even support lines form.

Let us say that a stock tanks from about down to about where it stays for several weeks. The longer the level holds, the more that believe is support. But after several weeks, the stock plummets to . Seasoned traders will let their losers go quickly and will exit the position somewhere between and . Newbie stock traders will dig their heels in and will hold on making the stock their own personal Vietnam War. A few rookie traders will exit at . Other amateur traders who haven’t given up at will be the first to sell when the stock gets back up to . They would love the chance to get out of this stock at break even. Their selling will temporarily stop a rally and form a resistance level.

Regret Is A Reason Why Support and Resistance Lines Form

Stock traders who see a stock that has gapped up feel like they have missed the gravy train. If a stock drops back or fills the gap, the traders who regret missing the first move will buy in anticipation of another such move. Their buying forms a support level.

Whenever you work with a chart, draw support and resistance lines across recent tops and bottoms. Expect a trend to slow down in those areas, and use them to enter positions or take profits.

Institutional Traders Cause False Breakouts

A false breakout or false upside breakout is when the price breaks through resistance which causes buyers to come in, and then suddenly reverses and falls back down below the resistance breakout level.

A false downside breakout occurs when prices fall below support, attracting more bears just before a rally.

Stocks that have a high percentage of institutional ownership often form false breakouts.

Institutional traders cause these false breakouts to make a ton of money off amateur traders.

Institutional traders have access to all limit orders. They know how many more buy orders are above a resistance level.

What institutional traders will do next is what is known in secret, behind closed door circles, as running the stops. A false breakout occurs when the institutions organize a hunting expedition to run stops.

For example, when a stock is slightly below its resistance at $30, the buy limit orders come flowing in near $28.50. The institutions calculate the liquidity ratio which measures how much the stock will go up if all buy limit orders are executed at $28.50. They calculate that the stock will run to $31 if all the buy limit orders at $28.50 are executed. They short the stock at $30 to push it down to $28.50. At $28.50 they cover their short position and go long as the wave of buy orders are automatically executed pushing the stock up to $31. If greedy traders start piling in, the institutional trader will stay long the trade. As soon as the buy orders start drying up, they sell short and the price falls back below $30. That’s when your chart shows a false upside breakout.

If you get stopped out on a false breakout, dont be shy about getting back into a trade. Amateurs usually make a single run at a stock and stay out if they are stopped out. Professionals, on the other hand, will attempt several entries before nailing down the trade they want.

For more free stock trading tips, tricks, and secrets go to stock trading help and if you are tired of losing money in the stock market see the excellent article at investing